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KARACHI: Former Governor, State Bank of Pakistan, Dr Ishrat Hussain has said there is a need to invest in creation of a pool of bankers conversant with Islamic banking in order to help the sector grow faster.

Speaking at the inaugural session of Islamic Capital Conference on Wednesday, he said there is a shortage of human resources in Pakistan with expertise in Islamic banking.

He further said there was need for standardisation of Islamic banking products, in absence of which, the cost of transactions would rise substantially because of requirement of fatwa for every transaction.

Increased penetration in rural areas: Number of borrowers from banks, which rose to 5.5 million from one million during the last eight years, could easily double if Islamic banks take measures to penetrate in the rural areas, shanty towns in urban centres, mandi towns, comprising of small and medium enterprises, small farmers and self-employed persons, he said.

Access to agriculture credit, SME financing, low cost housing finance, etc. will relax the credit constraint these individuals and businesses face today in expanding their business or investing in productivity or building assets, he said.

He said most of the conventional banks’ presence is limited to metropolitan areas and big cities. Large rural areas and mandi towns have a large untapped client base waiting for Islamic financial products to become accessible and available to them.

“Islamic banks can spread their geographical presence by locating their branches or other delivery channels in these potentially attractive but underserved areas and use IT tools and alliances with post offices, and other distribution outlets to develop a cost-effective business model,” he said.

He said rural areas in Pakistan are a reliable and sustainable pool for mobilising low cost deposits, which can provide a stable source of funding for Islamic banks that will not only cover their extra costs but also give them a competitive edge.

“Ijara products for agriculture implements, tube-wells, processing and dairy equipment, cold storage, warehousing, transport, etc. will be highly popular in these areas,” he said.

Extra precautions: He said Islamic banks had to take extra precautions and safeguards to ensure that they meet the exhaustive requirements to be Shariah compliant. “The perception that Islamic banks are simply mimicking conventional finance products is not going to go well with the large illiterate and uneducated population that forms the bulk of the future client base for Islamic banks,” he said. “This requires that the clients of Islamic banking must have business that should be socially beneficial for the society creating real wealth and adding value to the economy rather than making paper transactions.”

He said commingling of funds and even a semblance of contamination with non-Shariah compliant products and services should be scrupulously avoided. “The Islamic banks must ensure that funds are directed towards identifiable and acceptable productive activities,” he said.

He said there was a huge demand for Islamic capital in Pakistan and Bangladesh, but there was limited supply. Conversely, there was huge amount of Islamic capital in the GCC countries, but the demand was thin, he said.